Union Members, Not Minimum-Wage Earners, Benefit When the MinimumWage Rises

Supporters of
raising the minimum wage argue it will raise the earnings of
low-income workers. Labor unions are among the most prominent of
these supporters, a fact that makes little intuitive sense, because
very few union members work for the minimum wage. Unions, however,
are not just being altruistic when they push to raise the minimum
wage. A higher minimum wage increases the expense of hiring
unskilled workers.[1] This makes hiring skilled union members
more attractive and could raise the earnings of union members who
compete with minimum wage workers by 20-40 percent.[2] Meanwhile,
non-union, low-skilled workers' earnings actually fall due to
reduced working hours and fewer job opportunities.

Unions Support
Raising the Minimum Wage

Many groups
dedicated to fighting poverty, such as the U.S. Conference of
Catholic Bishops, support raising the minimum wage. This makes
sense, because many people support raising the minimum wage under
the well-intentioned but mistaken belief that it would reduce
poverty.[3] Some of the strongest advocates for a
higher minimum wage, however, are labor unions, whose stake in the
issue is less clear.

Last November,
organized labor led the fights to raise the minimum wage in six
states and to give Democrats control of Congress, in part on a
platform of raising the minimum wage.[4] Yet very few union members
work for the minimum wage. Only 2.1 percent of minimum-wage workers
belong to a union, versus 12.0 percent of the overall working
population.[5] Nonetheless, labor unions fight
passionately for a higher minimum wage.[6]

Skilled Workers
Benefit

Many companies
face a basic choice between two ways of making their product. The
first alternative is to hire many low-wage, unskilled workers to do
the job. The other option is to hire just a few highly skilled and
highly paid workers and use more machines to perform the same work.
This is not true in all industries, of course-highly skilled
workers are not much more productive as house cleaners, and a
modern automotive factory has no place for unskilled workers-but
this is the choice faced in many industries.

When the minimum
wage rises, it becomes more expensive to hire unskilled workers.
This makes the decision to employ highly paid and highly skilled
workers, instead of unskilled workers, more attractive to
businesses, and so businesses want to hire more skilled workers.
With skilled workers in greater demand, their job opportunities and
earnings rise. Unionized workers tend to be more highly paid and
highly skilled than the population as a whole and, so, benefit from
this effect.

Union Earnings
Rise

Union leaders may
well believe that raising the minimum wage is a good policy for
America, but they also know that it is a good policy for their
members. Union members earning above $7.25 an hour benefit directly
from raising the minimum wage because it reduces the competition
they face from less skilled workers.

This is not just a
theoretical argument. Researchers have found that this is what
happens when the minimum wage rises. Using data from government
surveys, economists at the Federal Reserve and the University of
California-Irvine examined how past increases in the minimum wage
affected the earnings of both low-income and unionized workers.[7]

They found that
increasing the minimum wage had few statistically significant
effects for unionized workers who earn well above the minimum wage.
For example, United Auto Workers members in Detroit who earn $75 an
hour do not usually perform work that could be done by any number
of unskilled workers. But the minimum wage significantly increases
the earnings of union members who compete with low-skilled workers
for jobs. The researchers estimated that if the minimum wage were
hiked 40 percent, unionized workers who earn between the minimum
wage and twice the minimum wage could see their earnings rise
between 20 and 40 percent.[8] The evidence shows that a higher minimum
wage unambiguously helps union members.

Low-Income Families
Lose

Unfortunately, the
opposite is true for unskilled non-union workers who earn the
minimum wage. The researchers found that raising the minimum wage
actually reduces these workers' earned income. Wages go up, but
only for those workers who keep their jobs. In response to the
higher minimum wage, employers reduce both the number of
minimum-wage workers they hire and the hours of the minimum-wage
workers they do employ. The lost hours and jobs mean that, after
the minimum wage rises, the average minimum-wage worker earns
less.[9] Union members who earn more than the
minimum wage benefit at the expense of minimum-wage workers.

The cost to
low-income workers extends beyond lost jobs in the present,
however. Minimum-wage jobs are entry-level positions that give
workers the skills and experience to be more productive employees
and earn raises. Two-thirds of all minimum-wage workers earn a
raise within a year.[10] When employers switch to hiring more
skilled workers, they make it more difficult for disadvantaged
workers to get entry-level jobs and start to climb the career
ladder. This hurts low-skilled workers for years after the increase
takes effect. Researchers have found that minimum wage hikes reduce
the earnings and job prospects of affected workers for over a
decade after they are passed.[11]

Conclusion

Unions campaign to
raise the minimum wage at least in part because it enriches them.
Raising the minimum wage makes unskilled workers more expensive for
businesses to hire, and so hiring skilled and highly paid union
members becomes a more attractive choice. This effect increases
union members' earned income but reduces low-income workers' job
prospects and income. That unions support raising the minimum wage
is understandable, but antipoverty advocates should reconsider
their support for a policy that hurts the very people they seek to
help.

James Sherk is
Bradley Fellow in Labor Policy in the Center for Data Analysis at
The Heritage Foundation.

[2] David Neumark, Mark Schweitzer, and
William Wascher, "The Effects of Minimum Wages Throughout the Wage
Distribu­tion," NBER Working Paper No. w7519, February
2000, at www.nber.org/papers/w7519.Figure 3 shows that a 10
percent increase in the minimum wage increases these union members'
earned income by 5 to 10 percent. Thus, a 40 percent increase could
increase their earned income by 20 to 40 percent.

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